How to minimise your tax burden

Shivani Sinha | 04-Feb-2016

There is a famous story about an ant and a grasshopper in English. It is about an ant who toils through the entire year to store food for winters while the grasshopper enjoys and sings in summer without thinking much about winters. So, when the cold and uncomfortable winters arrive, the ant remains cozy and well fed while the grasshopper has to starve and remain helpless.

You must be thinking why I am telling you a story when you are reading this blog to solve a complex problem of yours. This is just to tell you that as per the moral of the story is to prepare and plan for the investments today rather than at the end of the financial year. 

One of the inevitable things that you will encounter once you are employed or own a firm is TAX. The tax is the amount charged or levied on you as an individual or an organization by the state in order to fund various expenditures for public. It may vary depending on your salary, the current tax rates and the area you work in. But whatever the amount, it is inevitable and is a sort of burden on the employees since a large chunk of their salaries is taken away in the name of tax. If you are employed you have no option but to pay the taxes and pay them on time. Fail to do so and you can be punished under the law. So, if you cannot avoid it, the only option that remains is to minimize the taxes because you do not want to be giving away a significant amount of your income as tax, considering the current circumstances, the inflation and the never ending demands adding up in our daily lives.

For reducing the burden of tax one should take advantage of deduction available under the income tax act. There are various ways by which deduction can be taken and the same is discussed as under:- 

DEDUCTION UNDER INDIVIDUAL HEADS
Always remember that your income can fall in any of the five heads namely:-

  1. House property
  2. Capital gain
  3. Profit and Gains of Business and profession
  4. Salary
  5. Other Sources

DEDUCTION AVAILABLE ON TOTAL INCOME (Aggregate of all the five heads)

Deduction of Rs. 1,50,000/-

A deduction of up to Rs 1.5 lakh can be claimed under Sections 80C, 80CCC, and 80CCD. If you fall under the 30% tax bracket, you can entitle to save up to Rs 30,900 by investing in the following approved tax-saving schemes.

1. Employee Provident Fund (EPF):
You are entitled to contribute at least 12% of your salary-basic pay, dearness allowance which includes cash value of any food concession and retention allowance-towards EPF. This comes as a deduction under Section 80C.The money can be withdrawn immaturely only under the conditions mentioned by the Government. There will be no tax benefits if the amount is withdrawn before five years of subscription to the scheme.

2. Public Provident Fund (PPF):
Investment under PPF to claim income tax deduction can be done by any resident in India. Contributions can also be made by an individual on behalf of a Hindu Undivided family or in the name of spouse and children. Any contribution up to Rs 1.5 lakhs is eligible for tax deduction. The current rate of interest is 8.7% under PPF and the interest is tax-free.

3. Senior Citizen Savings Scheme (SCSS):
Individuals above 60 years or anyone above 55 years who has opted for a voluntary retirement can invest in this scheme. The maturity period is five years in SCSS, though it can be extended for next three years. Anyone can deposit an amount not more than Rs 15 Lakhs, only once in 
multiples of Rs 1000 and it offers an annual interest rate of 9.2% paid on a quarterly basis but the interest earned under this scheme is taxable.

4. National Savings Certificate (NSC):
Investment up to Rs. 1.5 lakhs can be invested under National Savings Certificate for either 5 or 10 years. Interest at 8.5% can be earned from NSC’s for 5 years and 8.8% from NSC for 10 years. Though the interest earned is taxed but there is no upper limit to the amount to be invested.

5. Bank, post office deposits:
Under this, investments in five-year banks and fixed deposits under post office become eligible under tax deduction although the interest earned is taxable

6. National Pension System (NPS):
Contribution by an employee towards NPS Tier-I account up to 10% of basic pay plus dearness allowance is tax deductible. No withdrawal is allowed in this. 

7. Life insurance schemes:
An investment of up to Rs 1.5 lakhs in Life Insurance Schemes like Unit linked or term plan or traditional endowment for a minimum of 5 years is eligible for a tax deduction if the sum assured is more than 10 times of the annual premium. Premiums paid are also tax deductible.

8. Tax-saving mutual funds:
They are also known as equity mutual fund schemes which have a lock-in period of three years. Investment up to Rs 1.5 lakhs under these is tax deductible although investment can be continued even after the lock-in period. Capital gains and dividends are not taxed.

9. Home loan principal repayment:
The major constituent of a home loan repayment is tax deductible for up to Rs 1.5 lakh. However, if the possessions are sold before five years of the procurement, the amount claimed as a deduction is taxed in the year the house is sold.

10. Children's tuition fee:
Tuition fees for full-time education of 2 kids in Indian educational institutions is also eligible for deduction.

OTHER DEDUCTION

If you have earned a higher salary and an investment up to Rs 1.5 lakhs seems to be little then here are the options of Sections 80C, 80CC, and 80CCD for your perusal.

1. Rajiv Gandhi Equity Savings Scheme:
The RGESS scheme was announced in 2012-2013 union budget of India, as a tax saving scheme. The scheme was aimed at the first time real investors. The scheme permits first-time equity investors, a tax deduction of 50% (or 25,000)after investing up to Rs. 50,000 in approved stocks and mutual funds(under section 80 CCG  of Income tax act).However, in order to claim this exemption, income of the investors should not be more than Rs 12 lakh a year and should have a Demat account. The investors can avail the tax benefit under this scheme for three years.

2. Employer's EPS contribution:
If you have subscribed to corporate EPS, under which both you and your employer contribute 10% of basic salary and dearness allowance towards your EPS account, the employer's contribution is deductible under Section 80CCE. This is over and above the Rs 1.5 lakh limit (employee contribution to EPS falls within this limit).

3. Health insurance premium:
Section 80D of income tax act gives you the opportunity of claiming a deduction in expenses related to health insurance premium, which may be paid by one for self, spouse, children and parents. There is a tax deduction of up to 15,000 for adults and up to 20,000 for senior citizens. One can claim an additional 20,000 tax deduction, if paying health insurance premium for his parents, in the case of senior citizens and Rs.15,000 in other cases. Expenses incurred on preventive health checks are also deductible up to a limit of Rs 5,000.  

4. Expenses for treatment of handicapped dependent:
If any of your spouse, children, parents or siblings who are dependent on you is handicapped, expenses paid towards his or her treatment and maintenance are eligible for the deduction, up to Rs 1.5 lakh if the disability is severe or Rs 50,000 otherwise.

5. Deduction in case of disabled persons:
An individual with a physical disability can claim up to Rs 1.5 lakh tax deduction in case of severe disability or Rs 50,000 otherwise.

6. Medical expenditure on self or dependent relative:
If you or any of your dependent relative suffers from these diseases including malignant cancer, AIDS, chronic renal failure and Thalassemia, then you are eligible to claim up to Rs 40,000 tax deduction for the amount spent on treatment of specified diseases. In order to claim the deduction, you should have a medical certificate issued by registered doctor or hospital. 

7. Interest paid on education loan:
Interest paid on education loan of self, spouse, children or any person to finance higher education ,of which the individual is a legal guardian, is tax deductible under Section 80E. Loans taken to fund any regular or vocational course are also applicable under this Section. The deduction is available for eight years or till the interest is paid in full, whichever is lower.

8. Donations, royalty, and patents:
Royalty earned on patents and books (other than textbooks) are allowed a tax deduction of Rs 3 lakh in each case. The deduction also applies to Donations to political parties and for scientific research, rural development and government relief work. Depending upon the beneficiary, the deduction can be 100% or 50%.

Source: Business Today

TAKING ADVANTAGE OF SLABS
For Individual and HUF-

  1. The basic exemption limit for individuals (i.e. below 60 years of age) is Rs 2.50 lakhs.
  2. The basic exemption limit for Senior citizens (60 years to below 80 years) is Rs 3.00 lakhs.
  3. The basic exemption limit for Very Senior Citizens(80 years and above)  is Rs3.50 lakhs

A tax rebate of Rs 2,000 from tax calculated will be available for people having an annual income up to Rs 5 lakh.

As said tax is inevitable as death but a proper knowledge of various schemes of tax deduction would save you from falling into the well of the huge tax burden. Proper knowledge and details of Tax deduction schemes would surely help you increase your savings and credits. Proper planning before the payment of every expense, will help you save every penny of yours from being excluded from the tax deduction. A person having proper knowledge of financial prospects would be saving much more amount than his unaware counterpart. All of these options have a certain limit that you cannot breach. Paying your taxes makes you a responsible citizen or employee. Do not adopt wrong means to avoid it, instead, just be smart and minimize it by hiring an experienced Chartered Accountant who can save you from all your tax related woes. Fagnum.com provides you with a platform to hire the best Chartered Accountant in India in just a few clicks!

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Fagnum.com. The writers are solely responsible for any claims arising out of the contents of this article.
About the Author
Shivani Sinha
A Master degree holder is a Content Developer and an SEO specialist. Having more than 6 years of experience into content development and marketing, she has contributed substantially in this arena. She is good at brainstorming and fast in writing crispy content, bold slogans, catchy captions and punchy one liners. Her stories are well researched and provide for an interesting read. She enjoys working in association with entrepreneurs while spearheading business launches providing marketing advice.